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Fixed Income

CBLO Sees 72% Rates on Cash Crunch, MSF Borrowing Goes To Rs. 1.4 Trillion

The borrowing in the Marginal Standing Facility (MSF) went to a record Rs. 1.4 trillion (1.4 lakh crores) for the weekend, on the cash crunch due to the income tax advance due date of Sep 15.


Interestingly, Banks were open on Saturday and Sunday for the tax payment. (30% of taxes must be paid by Sep 15).

This resulted in huge overnight borrowing from the CBLO window (interbank/MF dealing window) because the window for MSF (called the LAF) was not open on Saturday. CBLO is a financing scheme, and expands to the Collateralized Borrowing and Lending Scheme.

Rates on CBLO went up to 72%! (Annualized)

To fix that situation, RBI opened a 2 day MSF window for borrowing at 10.25%, and that brought rates down. (1.17 trillion was borrowed in MSF on Friday, and another 247 billion on Saturday).

Today, CBLO rates are still at 10.4%. The spike may have been temporary, but remember that this money borrowed from MSF is actually money that’s gone to the government which will take time spending it. In the meanwhile MSF has only a little more leeway – 2% of NDTL – and can go only to Rs. 1.6 trillion.

Impact: Higher Rates? A credit crunch coming soon? Or just a temporary thing? I don’t know.

  • Selva (@amazzzer) says:

    Your statement that MSF can go only upto INR 1.6 Trillion is incorrect.
    RBI’s notification is that for MSF, banks can dip into their SLR by 2%. Let me break it into components:
    NDTL of the banking system = 80000 Bn (approx 400 Bn/0.5%)
    SLR eligible investments = 21563 Bn (refer to latest WSS for details
    Minimum SLR = 18400 Bn (23% x 80000)
    Excess SLR = 3163 Bn (21563-18400) – this is the first component.
    This entire Excess SLR can be borrowed in MSF window.
    Additionally, banks can dip further 2% from their SLR requirement (effectively making it 21% of NDTL)
    2% of NDTL = 1600 Bn – this is the second component.
    Hence, in toto, MSF window can be accessed to the extent of 3163+1600=4763 Bn
    If the 400 Bn of Repo borrowing is excluded, the maximum that can be borrowed in MSF window is 4363 Bn. This is more than double the 1600 Tn, you seem to convey.

    • I don’t think so. See this circular:

      2. As announced in the Reserve Bank of India’s Annual Monetary Policy Statement 2012-13 on April 17, 2012, in order to provide greater liquidity cushion, it has been decided to raise the borrowing limit of SCBs under the MSF from 1 per cent to 2 per cent of their NDTL outstanding at the end of the second preceding fortnight with immediate effect.

      (This is the overall limit of on the NDTL of each bank, which will translate to the whole system being limited to 2%)
      The limit has been increased to 2.5% but the excess 0.5% is only for a special repo that is a passthrough funding for Mutual Funds for emergency liquidity. (

    • dheeraj says:

      Excess securities held (over and above SLR) can only be used to borrow from RBI’s repo window.
      As Deepak says, the MSF limit is 2% of SLR only.
      The reason MSF has become important now is because RBI has restricted borrowing from them under repo to 0.5% of NDTL. Remember repo borrowing from RBI is significantly cheaper than MSS (currently 3% p.a. cheaper).
      If the banking system were allowed to borrow entire excess over SLR through the MSF window we wouldn’t have a thriving repo (between market counterparties) and CBLO market.

  • Selva says:

    Without getting into specifics, I checked the same with heads of ALMs of two private sector banks (one large and one smaller) who have personally checked with the central bank on this. Difficult to cite those banks’ names here.
    Having said that, since you seem to be convinced of what you say, I will do further checking with other banks and more specifically their ALMs.

    • I read the circular as: You can borrow upto 2% of NDTL. If you have only (say) 1.5% of NDTL in SLR excess securities, then you can’t borrow 2% since you will violate SLR limit. So I will relax SLR limit (and that relaxation goes upto 2% of NDTL).
      So if a bank has only 23% of NDTL as SLR investments, they can still borrow 2% of their NDTL under MSF, and they won’t need to ask for permission on the SLR limit violation.
      See: – it has clearly specified that MSF can only be for 2% of NDTL as of Jul 17 2013.
      Maybe I read it wrong – if you get confirmation will you let me know?

    • dheeraj says:

      On a second reading of the relevant circular(s) I think you are right.
      All excess securities over and above SLR seem to be eligible for MSF. Since they were also eligible for the RBI repo window, MSF become irrelevant. Now, with repo borrowing restricted, MSF becomes relevant. The 2% borrowing allowed below SLR is an additional limit.
      This also means that CBLO / Mkt repo rates tend to get capped by the MSF window. CBLO rates shot up on Saturday only because MSF wasnt available (which they quickly opened in the evening).
      Apologies are in order here.

      • dheeraj says:

        I think Selva is right. The entire excess over SLR is eligible for MSF.
        The circulars clearly state that the 2% is an “additional” limit.
        This is the first time we might be testing the limits on MSF (since it’s introduction). Hence this confusion.

        • Dheeraj,
          I have a different perspective. There are two different concepts:
          a) the total MSF borrowing asa % of NDTL
          b) the SLR relaxation available in case I borrow within a) above, but then violate the SLR limit.
          For a) the limit is currently 2% of NDTL. The applicable circular is this: (

          Please refer to our circular DBOD.No.Ret.BC.95 /12.02.001/2011-12 dated April 17, 2012
          wherein it was advised that Scheduled Commercial Banks (SCBs) may borrow overnight up to 2
          per cent of their respective Net Demand and Time Liabilities (NDTL) under the Marginal
          Standing Facility (MSF) Scheme and Press Release 2013-2014/112 dated July 17, 2013,
          relating to RBI’s Special Repo Window.

          This is clear – even the linked original circular – that the limit of MSF is 2% of NDTL.
          Now for the b) part. If in the process of borrowing 2% of NDTL, a bank ends up violating SLR limits, then it gets a relaxation of upto 2% of NDTL.
          So you might wonder, why the “additionally”? That’s the confusing word. But if we use an example we can see it.
          Example: A bank has NDTL of 100,000 cr. and Government securities of 24,000 cr. SLR is 23%, which is 23,000 cr. so the bank has “excess” SLR securities of 1,000 cr.
          Now, it needs to borrow 2,500 cr. (or 2% of NDTL). Let us assume it borrows to the limit in regular repo , 0.5% of NDTL, or 500 cr. That means it gives 500 cr. of the excess SLR securities for repo. it is now left with 500 cr. of excess SLR securities, and 23,000 cr. of SLR limited securities on which it can’t borrow.
          Bank got 500 cr. but still needs to borrow 2000 cr. more. It will use the MSF window.
          Now it can borrow against that 500 cr. remaining “excess” SLR securities in MSF. But this is not enough, so it will ADDITIONALLY borrow another 1,500 crore BELOW the SLR limit. The “additional” is because this is additional to the excess SLR securities.
          So technically after borrowing the full 2000 cr. in MSF it is left with “unencumbered” SLR securities of 21,500 cr. which is less than the required 23,000 cr. SLR by 1,500 cr. or 1.5% of the NDTL. This is okay because this 1.5% “violation” of SLR limit is within the permissible range (2% below) stipulated in the circular.
          Can this bank borrow 3,000 cr? (500 cr. repo and 2,500 cr MSF?) Answer is no, because while it will meet the SLR relaxation which can go down to 21,000 cr., it will violate the borrowing limit of 2% of NDTL that MSF is capped to. It is limited to 2,000 cr. of MSF borrowing.
          This is my understanding after reading all the circulars, and I think RBI is unambiguous about this. I also think this will be known very soon once this limit is hit 🙂 If RBI lets things go on beyond MSF of 1.6 lakh cr. I am wrong 🙂

        • dheeraj says:

          In fact the limit (if there is a limit) is not exactly 2% of NDTL. It will be 1.90% or thereabouts in reality.
          Because, unlike repo banks have to provide 105% worth of securities for the amount that they borrow.
          Under repo, it is 100%.
          This is an additional twist in the MSF tale.

  • Selva (@amazzzer) says:

    I know of two banks which are borrowing close to 3.5-4% of their individual NDTL under MSF. Since most of PSUs are net cash surplus the overall system liquidity is not crossing 1.4 Trillion plus the CMB redemptions are taking care of advance tax outflows in a way.